Did you know that 41% of men and 46% of women lock in the lowest Social Security benefit possible by starting benefits as soon as they become eligible?1 Unknowingly, many people reduce their lifetime benefit payments by thousands of dollars.
The do’s and don’ts for claiming benefits can be complicated. By educating yourself on your options, you’ll be better equipped to make the right decisions for you. Here are some key Social Security facts to know.
Age Matters. Determining what age to begin receiving Social Security benefits is the single biggest factor that will determine the amount of benefits you receive during retirement. Generally, the longer you wait to begin payments, the larger they will be. To understand the impact of timing on Social Security benefits, consider these factors:
Taking benefits early could mean locking in the lowest benefit amount. You can collect Social Security as early as age 62, but your benefit could be permanently reduced by as much as 25% of the eligible benefit compared to if you’d waited until reaching Full Retirement Age. 2
Full Retirement Age 2 is the age at which you’re eligible to receive your full Social Security benefits. Waiting until this key age or even longer to start benefits can mean a larger benefit amount. It may also open up a variety of claiming strategies for married couples. For most current retirees Full Retirement Age will range between ages 66 and 67, depending on the year you were born.2
It can pay to delay. Delaying your Social Security claim can be a huge plus. Each year you continue working will increase your lifetime earnings, which helps determine your benefit payments. Your benefit will also increase automatically by 8% each year from the time you reach Full Retirement Age until you begin payments, up to age 70 (assuming you were born in 1943 or later).
Marriage has advantages. While anyone may be able to increase benefits by delaying their start, married couples have several additional advantages when it comes to Social Security:
Once a spouse starts receiving Social Security benefits (at Full Retirement Age), his or her partner can take spousal benefits, worth up to 50% of the benefit-receiving spouse’s total.
Former spouses and surviving spouses may also be eligible to receive benefits based upon the worker’s benefit amount.
There are filing strategies specifically for married couples that could have a substantial impact on the amount of total household benefits, including the amount a surviving spouse will receive.
Who’s eligible for Social Security benefits?
In order to be eligible for Social Security benefits, you need to earn enough credits based on your work history. You earn credits when Social Security taxes are deducted from the income you earn from working. You need 10 years of work to qualify and they don’t need to be consecutive. If you stop working before you have enough credits to qualify, you don’t need to worry about losing the credits you’ve earned. If you begin working again, you can add any new credits to your total. The monthly benefit you’ll receive is determined by when you start your benefits and your average earnings during your working years. Higher lifetime earnings generally mean higher benefits, although there is a cap.
You may be wondering how Social Security benefits are calculated. The formula uses the 35 years in your employment history in which you earned the most (adjusted for inflation and any changes in your wages during those years). If your work history is less than 35 years, the remaining years with no earnings will be factored in at zero dollars. You can increase your benefit by replacing any zero-dollar years by working longer, even if it's just part-time. Fortunately, no lower-earning year will replace a higher-earning year because the benefit is based on the highest-earning 35 years. If you do happen to make more money, your benefit will be increased, even if you are still working while taking your benefit.
Benefits While Working.
If you are Full Retirement Age or older, you can continue to work and keep all your benefits, no matter how much you earn. However, if you are younger than Full Retirement Age and have started receiving Social Security benefits, there’s a limit to how much you can earn without reducing your benefits. How much your benefits are reduced 3 depends on when you reach Full Retirement Age and how much you earn.
1 “When to claim Social Security Benefits,” AARP Bulletin, October, 2013
2 Full Retirement Age is the age at which you’re eligible to receive your full Social Security benefits. For people born between 1943 and 1954, Full Retirement Age is age 66. It gradually climbs toward 67 if your birth date falls between 1955 and 1959. For those born in 1960 or later, Full Retirement Age is 67.
3 If you are younger than Full Retirement Age for the entire year, your benefits will be reduced by $1 for every $2 you earn over a threshold of $15,480. If you reach Full Retirement Age during the year, your benefits will be reduced by $1 for every $3 you earn over $41,400 until the month you reach full retirement age. These thresholds change annually, so it’s worth visiting Social Security’s website (social security.gov) or speaking to a representative to determine the exact thresholds each year.
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